The Financial Reform Bill is now officially a joke. D.O.A. After the worst financial meltdown and still no jobs in the aftermath, we get...lobbyists getting their way in Congress.
The Lincoln derivatives amendment was weakened and watered down. Banks now can keep most of their derivatives. They do not have to spin off 92% of them to affiliate companies.
Under the agreement, reached late Thursday, banks would continue to be allowed to deal interest rate and foreign exchange swaps, "credit derivatives referencing investment-grade entities that are cleared," derivatives referencing gold and silver, and the firms would be allowed to hedge "for the banks' own risk."
Banks would be forced to push out to their affiliates derivatives referencing "cleared and uncleared commodities, energies and metals (with the exception of gold and silver), agriculture, credit derivatives referencing non-investment grade entities and all equities, and any uncleared credit default swaps," Peterson said.
"Frankly, the biggest part of all these derivatives, by far, are the ones that I named that are going to be able to stay in the bank," Peterson added. "Interest rate and foreign exchange are by far the greatest part of the amount of business that's involved here."
The final agreement provides a number of exemptions: Banks can continue trading derivatives used to hedge their risks and can keep trading interest-rate and foreign-exchange contracts. Banks will have up to two years to move other types of derivatives, such as credit default swaps that aren’t standard enough to be cleared through a central counterparty, into a separately capitalized subsidiary.
97% of Market
U.S. commercial banks held derivatives with a notional value of $216.5 trillion in the first quarter, of which 92 percent were interest-rate or foreign-exchange derivatives, according to the Office of the Comptroller of the Currency. The five U.S. banks with the biggest holdings of derivatives -- JPMorgan, Goldman Sachs, Bank of America, Citigroup and Wells Fargo -- hold $209 trillion, or 97 percent of the total, the OCC said.
The Volcker rule, which was to stop banks from gambling with your money, was also shredded like wood in a chipper. Now banks can
gamble invest 3% of their Tier 1 capital in speculative ventures. This is more than what the large banks currently hold.
Huffington Post cranked some numbers and shows this actually increases banks' hedge fund and private equity fund speculative activities.
Using JPMorgan Chase, the nation's second-largest bank by assets with more than $2.1 trillion, as an example, the bank would be able to invest an additional 40 percent of its cash, or an extra $1.1 billion for a total of $4 billion.
For Bank of America, the nation's largest bank with more than $2.3 trillion, that change allows the firm to invest more than $4.8 billion in hedge and private equity funds, an increase of 80 percent, according to the bank's 2009 annual filing with the SEC. Morgan Stanley can invest $1.4 billion, a 58 percent increase, while Goldman Sachs can invest $1.9 billion, an increase of just 10 percent, securities filings show.
Even more absurd, the New York Times has a fluff piece claiming this is the strongest piece of legislation since the Great Depression. They should be hammering on this administration and Congress for being so corrupt they cannot fix the largest financial ponzi scheme since 1929.
For other loopholes and water downs read Financial Reform D.O.A..